I know we live in a digital world now, but, if you're like me, the paper days don’t seem that long ago. Some days I’d look up and my desk would be completely covered in bills, invoices, statements, policies, catalogs and pamphlets.
If you’re as old school as I am, you know what I’m talking about. You’d get up early on a Saturday morning to get something done, but despite making some coffee and turning up your favorite playlist, you would wind up spending a ton of time just moving stuff from one side of the desk to the other.
We can laugh a little because we’ve been there. It’s not as funny, though, when those stacks of paper represent piles of debt.
Americans have lots of debt, and most of us don't know how to start cleaning up the mess. That’s why the ad for debt consolidation sitting on top of one of our piles is so appealing. It’s exactly what we were looking for. Only one payment! And a smaller payment at that! How cool is that?
Or is it?
It’s important to realize that debt consolidation really isn’t all it’s cracked up to be. For one thing, its track record is pretty shaky. Research tells us that most people who go through the consolidation process wind up back in debt later on.
But, beyond that, consolidation includes at least three dangers that you might not think about unless you’re looking at things very carefully:
1. It tricks you into thinking you actually accomplished something.
In reality, it’s just like the messy desk. All you do is move stuff around. You don’t reduce your debt by a single penny. Actually, you’re probably adding to your debt through the extra fees you have to pay.
But that fake feeling of progress also reduces your intensity toward getting out of debt once and for all. Focus on debt elimination, not consolidation. Think of it this way: The “con” part of “consolidation” is there because it cons you into a false sense of security.
2. It extends the time you’re in debt.
Debt consolidation companies are not charitable organizations established to help people in need. They are businesses out to make a profit, so they charge you fees for their services. And the last thing you need to do when you’re getting out of debt is add more debt!
I know debt consolidation is easy to justify. After all, it does lower your payments, right? But the payments are only lower because they increase the amount of time you’ll be paying! So don’t focus on getting lower payments. Focus on getting to a place where you’re making no payments.
3. You can do it yourself—for free!
The debt snowball is a much better way to deal with debt. It creates some real victories up front, not the false feelings created by consolidations. It also doesn’t charge you a fee! You do the work, so you get the benefit.
Just list your debts smallest to largest, regardless of interest rate. Then, while you’re making minimum payments on everything else, pay off the smallest one as quickly as you can. Once it’s paid off, take that payment and add it to the money you’re paying on the next smallest debt. Every time you pay off a debt, add the amount you were paying to the payment for the next debt in line.
Before long, your snowball will gain some incredible momentum—without the extra fees or hidden costs. Sure, you’ll have to tighten your budget to do it this way, but that’s a wise and biblical way to do things. And the discipline you’ll develop will help you stay out of debt in the future. Less debt means you’re in a better position to serve God and to serve others.
Sure, consolidation may seem tempting, but I promise you there’s a better way to become debt-free. Clean the clutter off your desk with discipline and focus. It may seem harder in the short run, but the results will change your life forever.